Spot Them, Avoid Them and Close Faster
Unprincipled concessions are concessions not tied to a credible business rationale. Years of research show us that this simple business negotiation mistake costs companies between 9 and 18% of their gross operating revenue.
The most basic negotiation example of an unprincipled concession is this: To test your negotiation acumen or your value proposition, your client asks for a large up-front discount. You immediately agree without reference to the value of your solution, thus making an unprincipled concession.
At this point, the potential client is thinking two things:
- They could have asked for and received an even bigger discount
- You don’t know the true value of your offering
An unprincipled concession can have a snowball effect that drags out the negotiation. Since you made such an easy give at the first request, the other party will request more concessions. And your value-based leverage and asking price will erode.
Why Do You Think a Discount is Justified?
When faced with a demand for discounts, the simple question above can be critical for maintaining your leverage. Make the other side tell you why they think they deserve a discount, taking the focus off of price and putting it back on questions of value. In our experience, one of three things happen when you employ this artful bit of pushback:
- The other side immediately concedes the point because they were just “fishing” for easy concessions.
- They reengage by challenging your value proposition (including introducing competition). This allows you to refine and repeat your value argument while discovering areas where you can make principled concessions.
- They have genuine constraints that make your solution unaffordable. This allows you to reduce scope and content and, therefore, price.
Our K&R Principled Concession Rule is: Same Terms + Same Content + Same Outcome = SAME PRICE.
You make a principled concession when you include a credible business rationale for any change in your offer. If the other side likes your solution, but just can’t meet your price, you could offer to explore their priorities and find a way to alter the scope and timing of services to help them stay within their budget.
Remember that a concession easily given appears of little value. Make the other side earn the concession and you will:
- Maintain the value of your offering
- Strengthen your credibility and leverage
- Stop the process from turning into an endless game of requests and concessions
Very good insights in this article.This is precisely the type of information that companies need to know before the beginning of the negotiation process, in order to maintain both their perceived value and profit margins.